Do you consider assessment when making an offer?

UpNorthHeyMay 12, 2013

I am looking at homes in a neighborhood where the tax assessments have been decreasing (-13% since 2011). It's an area of town that has traditionally been working class and known for good housing value, but obviously not a prestige part of town.

I've checked properties in other parts of town (Madison, WI) and assessments have pretty much stayed the same in the last couple years. Is the decrease in assessment value cause for concern? Or could this just be the assessor "right-sizing" after the housing bubble? or a reflection of sold foreclosures?

I think I'll call the city assessor's office to see if there is a reason identified for the decreases, but I've not heard of anything upcoming that would negatively affect property values.

Tax assessments have little to do with house prices ... they are designed to bring in tax revenues. If the allowed tax is $1/$1,000, raising assessments increases revenue without having to fight to get the actual rate increased.

They often rise and fall a couple of years behind housing prices - our assessment in Phoenix is dropping although housing prices are rising.

Where I live is currently reviewing properties and making sure EVERYTHING is on the tax rolls accurately, which will lower our rates even as prices stay stable.

I think it is a good idea to talk to the assessors. you might glean good info on the home in question and also about the neighborhood in general. I would not base your offer on the information, but consider information you might gain as useful for making a decision.

You might take a look at how other houses in the neighborhood have had assessed values change over the same period of time. However, you can have 2 similar houses that don't have similar values because one homeowner protested the value and the other one didn't.

Do you consider assessment value? Not if you are buying in California. Due to Proposition 13 assessed value is based on purchase price and not on market value.

Example: You and your neighbor could have identical houses. You bought last year and neighbor bought 30 years ago. Your tax bill will be around $15k and neighbor probably pays around $3k. New buyers get to subsidize the taxes for long time residents, who then get a nice profit when they sell their houses that have had major increases in value in 30 years!

Prop 13 also had a major error/loophole that gives business owners a brake on RE taxes ... it doesn't take long for a new resident to CA to figure out why the state has major financial issues!

brickeyee, lots of squandering/spending of money. Plenty of issues with the collection and spending of tax dollars. There seems to be less oversight or accountability of those that have access to the tax dollars.

Spending is a different issue. The point Chispa made was that tax assessments are based on purchase price not actual value, so more recent buyers will pay substantially more than those who bought 30 years ago.
And, yes, if that's the case, then the conclusion that someone with a 15K tax bill thus subsidizes someone who pays 3K for a house of equal value doesn't seem farfetched.

Oh, it gets better, they can pass that lower tax value to their children, who move in with several kids and that $3k in my example, doesn't go far in educating a second generation of kids on an assessed value that is 20+ years old. A major tax inequality for those that purchased recently or not lucky to inherit a family house. I'm happy to pay my share, but no to subsidize others who have the money, but pay less due to unfair tax laws/loopholes.

Well, you had me until you threw in the Socialism.... I certainly don't see what's Socialist about this. I could imagine a lot of people screaming Socialist if you tried to raise the taxes on those who've owned property for a long time.
I'm also not sure that the lower tax assessment gets passed on to the heirs. Normally, the value of a property is established at the time of inheriting it, so I'd assume that that's also the value that will show up when the deed is transferred.

I edited as you wrote, that wasn't the word I was looking for. Yes, the heirs get to keep the lower value. One of the loopholes. Don't know the details since I will never have that option, no family in CA.

Edit: Looked it up. Prop 58 & 193
These propositions allow the new property owners to avoid property tax increases when acquiring property from their parents or children or from their grandparents. The new owner's taxes are calculated on the established Proposition 13 factored base year value, instead of the current market value when the property is acquired.

You are all raising a good point. However, as someone who doesn't live in CA, the other side of the argument occurred to me as well: if you are on a fixed income and bought a low-priced home back 30 years ago, if your taxes go up in such a high home price area like CA, you might very well be totally priced out of your own home in short order.

It seems there is an element of fairness, to the extent that someone who buys a $750K house knows in advance what the taxes will be, and can factor that in. Someone who bought a $75K home 30 years ago, might never be able to pay the taxes on a home valued at current numbers.

Imagine the dislocation if everytime Californians discover a new "in" place to live and home prices zoom up, half the community has to sell their own homes because their taxes suddenly quadruple.

Of course, even if you value taxes on the purchase price, the tax rate may change over time. Or are you saying the actual dollar amount of the taxes never changes?

I live in CA, I don't mind the tax structure even if I pay double what my neighbor does. The old way was pricing people out of their homes.
I know people in other states that have been taxed out of their homes.
That actual dollar amount does go up over the years, but the assessed value has an annual limit.
I think the unreasonable loophole is commercial property, but now in CA businesses are leaving because of high taxes in other areas of taxation.

Yes, the property value can go up by a set small maximum percentage. If you can't pay the taxes on your house that is now valued at more like $1.8 m, then you can sell, take the money and buy in a cheaper area, get a reverse mortgage, etc. In my town, most have plenty of money/investments to pay market value taxes.

Another option, get to keep a low tax value, but when you sell or your heirs sell, they can pay back the tax breaks from the proceeds of the $1.8 m sale

Studies have shown that this tax break actually causes higher home prices by limiting inventory. The retired/old homeowners don't move away limiting inventory in good school town and/or prime work/commuting areas.

We had to move here due to work. I try to learn what I can about the system here and will vote to change things when they come up.

Washington State has this problem--being taxed out of your home. In our county, if you are a senior citizen AND live in the home, you can annually apply for senior exemption. Supposedly, when you eventually sell (or your family sells) the taxes are supposed to be paid back, but I don't see how that is collectible at all. Not to mention, all the abuses of the system (the house behind me that is now being developed... 2bd/1ba house on 3.5 acres. Eventually sold for 1.8Million. For years they paid less in taxes than my house on .18ac and valued at a fraction of that because they got senior exemption. There was not a senior living there--in any of the 9 years we lived here. Nobody in the county checks, it seems.)

Short answer to the OP's question, I'd not look at the assessed value without knowing more about how it is determined, which is often "a high level secret" it seems. Here, our assessed values are determined by land value of land sold recently (for development). Our improved values (house) are extremely low. At one point, my house was "worth" 18K on a several hundred thousand dollar assessment. They aren't allowed to value the package (land + improvements) at higher than what it could sell for, but base price of land is so high, improved values are very low. So, during the recession, we were hit moderately, but didn't see a big relief in our tax assessment value because they do a 3 yr averaging to determine it. Now that prices are on the rise again, my assessed value is lagging the market value.

In your area, you might be seeing that averaging in effect because it takes out the peaks and valleys, but also "lags" the market.

I would have no problem with tax breaks for senior citizens that truly have a need for relief, but that is not the case for most in my area. I guess if my retired neighbors had to pay RE taxes on a market value assessment (not their current 30 year old one) they would have had a bit less to spend on his new $100k sports car or a few less cruises per year!!

I guess I'll keep dreaming of a fair tax system for everyone, that can't be worked around or scammed!

Asssessments vary widely. Sometimes even based on the items in the home. In my area having a fireplace will increase your tax assessment. So if you have more it will increase the value of a home. In addition, square footage will usually raise an assessment in my area. But that depends if they even have the square footage correct.

Assessments vary depending on how a home sells in the area. When there is a new town assessment based on full value, a home that sold under market value can depress the values of other homes surrounding it.

And a home's assessment can be lowered if the owners fight to have it lowered.

Be careful to use home assessments. They can vary for a variety of reasons.

I think only about 10% of the responders have addressed the original question. Most people know that the absolute value of the two numbers, or the difference between them (price and assessed value) is not relevant.

The OP was asking about a relative % change in one area as opposed to another, and whether or not that might be significant. It seems like it should be an answerable question, for a particular area, but you would have to know some additional details about local levies, etc. Worth asking the question, I would think.

You are right Lori...
IMO, the trend of the assessments would have no bearing on the trends of that particular neighborhood. Thus, it would not have much weight when it came time to decide if purchasing in that neighborhood was right for you. But, if you have a knowledgeable agent, he/she could determine fairly quickly what the market value trends have been over the last few years.
This info is what is important when deciding on a particular neighborhood.